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ФЕДЕРАЛЬНОЕ ГОСУДАРСТВЕННОЕ АВТОНОМНОЕ ОБРАЗОВАТЕЛЬНОЕ УЧРЕЖДЕНИЕ ВЫСШЕГО ОБРАЗОВАНИЯ

«НАЦИОНАЛЬНЫЙ ИССЛЕДОВАТЕЛЬСКИЙ УНИВЕРСИТЕТ

«ВЫСШАЯ ШКОЛА ЭКОНОМИКИ»

Факультет мировой экономики и мировой политики

Тенденции экономической экспансии Республики Корея в Латинской Америке (1980-2018)

МАГИСТЕРСКАЯ ДИССЕРТАЦИЯ

по направлению 41.04.03 «Востоковедение и африканистика»

студента образовательной программы

«Социально-экономическое и политическое развитие современной Азии»

Студент(ка) группы МСЭПР171

Юлия Игоревна Кудрявцева

Москва 2019

Government of the Russian Federation

National Research University Higher School of Economics

Faculty of World Economy and International Affairs

Educational Programme

“Socio-Economic and Political Development of Modern Asia"

MASTER'S THESIS

Tendencies of Economic Expansion of the Republic of Korea in Latin America (1980-2018)

latin america economic development

Student

Kudryavtseva Yulia Igorevna

Moscow, 2019



Table of contents

Introduction

Chapter 1

1.1 Peculiarities of economic development of Latin America in 1980s-1990s

1.2 Challenges of South Korea's economic development

Chapter 2

2.1 Institutional expansion

2.2 Trade expansion

2.3 Investment expansion

Chapter 3

3.1 Competition with neighboring Asian countries 54

3.2 Risks and threats caused by local conditions in Latin American countries

Results

List of References



Introduction

Since the establishment of the Republic of Korea, it has overcome numerous challenges. It had to revive economy in 1950s, develop industry from scratch in 1960s, built up heavy and chemical industries in 1970s, introduced liberal reforms in 1980s, joint the UN in 1990s. It succeeded to obtain global recognition and integrated into world economy.

Nowadays South Korea became the 11th world economy and one of the major trading partners for numerous countries of various regions. It has signed Free Trade Agreements with 15 actors including 52 countries. Its steel, semiconductor, display and chemical industries are one of the most competitive in the world Korea's Number One Industries. Retrieved on 2 May 2019 from URL:http://m.investkorea.org/m/world/all.do. It possesses a leading role in shipbuilding on global market in terms of construction and orders. About 70% of automobiles manufactured in South Korea are being exported. It ranks high in steel production and possess 6th position on world market. South Korea became one of top ten attractive countries for foreign investments Foreign investment has grown together with the Korean economy. Retrieved on 2 May 2019 from URL:http://m.investkorea.org/m/policy/overview.do.

Several factors contributed to steep economic rise during several decades. One of such factors was integration into world economy and global economic expansion. It enabled to cut manufacturing costs, improve competitiveness of South Korean manufactured goods, increase export volume, improve trade balance, get access to wider range of markets and industries.

South Korea has been following export orientation policy which helps to remain integrated into world economy, sustain economic growth, increase income revenue, increase economic indexes such as GDP and GDP per capita. Therefore, economic expansion abroad is beneficial for South Korean economy.

Now South Korea expand abroad by several ways. It can be divided by institutional expansion, trade expansion, investment expansion. Trade increase was important because it allowed to keep the pace of economic growth when South Korea ran out of other ways of economic growth. In order to facilitate trade flows and eliminate trade barriers, South Korea started concluding Free Trade Agreements since 2004. It also enabled investment growth and penetration into new industries beneficial to South Korea.

Exonomic expansion proceeded by several steps. The first stage was connected with the need for foreign currency, trade balance improvement and newly created industries' production distribution. The further stage was a result of economic liberalization reforms and high pressure from Europe and the USA attempting to deprive South Korea of a status of developing country within GATT regulations. The next step was connected with the need for new export markets to combat negative impact of the Asian crisis which hit most of South Korean major partners. The following step is the result of modern economic challenges.

Therefore, foreign economic expansion is an essential source of economic growth for South Korea. It collaborates with various regions to enable deeper economic cooperation.

Latin America is one of the markets South Korea finds potential in. The regions have deep ties since labor migrations from South Korea. For example, first South Korean labor migration to Latin American country happened in 1905 in Mexico. Since that time, many Korean communities live in Latin American countries. South Korea established diplomatic relations with all Latin American countries except Cuba. The first country South Korea established relations with was Brazil in 1959.

Development of economic relations between South Korea and countries of Latin America faced numerous challenges. To start with, South Korean export oriented economy had difficulties with Latin American countries collaboration because of its import substitution policy in most countries of the regions before 1980s. Demand of economies of the regions differ significantly. Furthermore, the regions have different mentality, business culture and languages. In addition to that, it is distant from each other.

Nevertheless, economic liberalization tendencies started in 1980s in both regions built a foundation for further collaboration. In addition to that, combating of the issues connected with a “lost decade” of Latin America and South Korea's need for world market integration and natural resources to ensure growing industry demands the regions intensified their ties. Moreover, South Korea attempted to cope with growing expansion of emerged China and to replace Japan's positions in context of its internal crisis of 1990s. Growing wages of South Korean labor force, which made South Korean goods more expensive and less competitive, made relocation of manufacturing abroad seem attractive, and Latin America seemed to be a way out. Finally, even Asian crisis did not affect economic relations between the regions because, despite decline in trade volume, it recovered quickly.

Nowadays, Latin America became an important partner for South Korea in terms of trade and investment. There is Free Trade Agreement with Chile, Peru, Colombia and Central America (except Guatemala) concluded by South Korea Free Trade Agreements. Retrieved on 16 April 2019 from URL:https://aric.adb.org/fta/. Relations between the regions are one of the most dynamic for South Korean foreign economic policy. During the last decade South Korean investment flow to South and Central America increased ten times; South Korean export flow to Latin America prevails twice over import since 2003 Korea International Trade Association. Korea Trade Statistics. Retrieved on 12 April 2019 from URL:http://www.kita.org/. Trade balance remains positive during a long period of time.

South Korean leaders usually highlights the importance of trade diversification. It is an acute issue for modern South Korea in context of protectionism tendencies in economies of its major trading partners the USA and China. Actually, it is important to develop ties with various regions within globalization and world labor division and specialization.

In order to reveal major tendencies of South Korean economic expansion to South and Central American countries, there is a need to study South Korea's historical background and research on Latin American economic development is 1980-1990s when an increase of economic collaboration between the region occurred. In addition to that, competition in Latin America among major Asian economies need to be studied to assess the risks of South Korea's expansion there. Local issues Latin American countries face should be also taken into account in order to eliminate risk of South Korea's operation there. Both institutional, trade and investment ways of expansion have to be analyzed to reveal an overall picture of currents affairs.

The master thesis covers main tendencies and stages of economic expansion of the Republic of Korea in Latin America. The purpose of the research is to reveal economic opportunities that could be found in Latin America for the Republic of Korea in context of economic expansion. It is also expected to assess all operational risks and the level of competition among foreign powers there and therefore to define the major tendencies of how the Republic of Korea shape its economic policy towards emerging region abundant with commodities and less competitive in technologies.

It is anticipated to reveal what Latin American industries seems attractive for South Korea and in what way the region may be beneficial for South Korean economy, which faces numerous challenges. The results of the study may be beneficial while defining opportunities and working on development of Russia's economic ties with the Republic of Korea.

The object of the research is South Korean foreign economic policy. The subject of the research is South Korean economic relations with Central and South American countries since 1980s. The hypothesis is that Latin America is an important economic partner for South Korea in terms of South Korea's demands.

Practical significance of the research is the potential contribution to knowledge on South Korea's foreign economic policy. The research on South Korea's economic collaboration with Latin America might provide valuable insights for better shaping Russia's policy towards South Korea and benefit for Russia-South Korea economic collaboration. Understanding of South Korea's demands and foreign economic interests enables to form the proper approach in Russia's foreign economic policy and make Russia more economically attractive for South Korea.

The research is conducted from realism perspective focusing on prevailing of national interest of any actor of international collaboration. The research questions are the following:

1. What economic trends influenced trade and economic relations of South Korea and Latin America;

2. What states are the main competitors for South Korea in Latin America;

3. What are the major local issues in Latin American countries that make the region less attractive:

4. What ways does the Republic of Korea use in order to expand its economic influence in Latin America.

To respond to research questions, the following tasks are developed:

1. To define the major events and trends in economic history of South Korea since 1980;

2. To define the major events and trends in economic history of countries in Latin America in 1980s-1990s;

3. To define possible ways of economic expansion;

4. To analyze the degree of rivalry for South Korea in Latin America:

5. To reveal Latin America's issues that may make the region less economically attractive for South Korean in penetration into Latin America.

The research would be mostly made on quantitative methodology because there is a need to collect numerical data and interpret it to make relevant conclusion. Descriptive research is to be implemented as essential to describe current states of affairs. Besides that, analytical research might be used because already available facts can be also analyzed to make a critical evaluation of the material in order to reveal new insights and study the issue from the new perspective.

The following methods are to be employed. Meta-analysis enables to used interpreted data and summarize it into one study. It helps to study the topic from new perspective and find new ideas. In conditions of strong time limits of academic year, the method provides great opportunities. Moreover, as the region of study is extremely distant, it is usually the way out.

Cross-sectional method is also contributive because it enables to study and compare several variables at one exact point of time. We can take concept different in variable of interest but sharing other variables. As the region I study is comprised of many states, the methods seems appropriate. The only limitation of the method is impossibility to define cause and effect relations.

Comparative historical method might also help to examine historical events influencing economic environment in both regions and create explanations of it or compare with the reference to present day.

Case study provides further insides and reveal logic of a sequence of events by examining and proving one case. It allows to provide a full reasonable picture by a detailed examination of one case. It might be beneficial while studying South Korea's policy towards numerous countries.

There is little research on the topic. There is no complex study on the related issue revealed. Most scholars focus on Latin America's relations with China or Japan, underestimating the role of South Korea-Latin America relations. InRu addition to that, much data is provided on either Korean or Spanish or Portuguese. Furthermore, the figures become obsolete very fast.

The following publications provided the basis of the research. Korgun I.A., Kukla M.P., Lexutina Y.V., Popova L.V. study South Korea related issues, while Davydov V.M., Pashentsev E.N and Stroganov A.I. research Latin America related issues.

Korgun I.A. and Popova L.V. study the factors influenced South Korea economic development in their publication called “The Role of External Economic Factor in the development of the Republic of Korea”. The study covers the period from Japanese occupation till 2011.

The purpose of the publication is to define the role of external actors on South Korean economy and to justify fast pace of economic development. In addition to that, the authors define the change of priorities of South Korea's foreign economy in context of national priorities. They also reveal the role of South Korea in world economy by defining its specialization and national interest and analyzing structural changes in South Korean economy caused by integration into world economy.

The authors admit the high role of export in South Korean economy. They also pay much attention to South Korean foreign direct investments and its benefits of national economy. In addition to that, they analyze the role of South Korea's participation in multilateral and regional integrations and study the role and significance of Free Trade Agreements.

The authors critically analyze South Korean economy. They highlight structural issues proved by figures showing trends. They cover the role of Latin America in South Korean integration into world economic relations. They consider that the choice of Chile as the first partner signed Free Trade Agreement with was not random. According to their point, Chile perceived as a minor not mature economy that can provide practice and experience before negotiation on Free Trade Agreement with major economies such as China and the USA. The proving of the idea seems logical and trustful.

The publication provides much data backed up with figures and details. But it lacks detailed data on import relations of South Korea. Nevertheless, it makes it possible to form a vision of South Korea's major economic interests that is useful while accessing perspectives of collaboration with other countries.

Kukla M.P. focuses on modern economic conditions of South Korea in her publication called “The Economy of the Republic of Korea in the beginning of 2000s”. She uses macroeconomic indexes to assess modern state of affairs. She also provides data on South Korean relations with Russian Far East. It also examines foreign economic policy of the Republic of Korea.

She describes South Korea as an economy with high potential and admits orientation on external partners of South Korean economy. Furthermore, she considers that import of commodities plays a significant role of not just trading relations but also a sustain of all South Korean economy. She recognizes that relations between Russia and South Korea has a limited potential because of South Korea's strong orientation on import of natural resources without need for other Russian industries' supply. All conclusions are proved by statements with details. The publication helps to assess the need of South Korea in import and the changes in South Korean foreign economic policy.

Lexutina Y.V. studies trade and economic relations between South Korea and Latina America since the establishment of the republic till 2015. It provides a comprehensive analysis and description of economic relations between the regions. She also provides a rationale of the relations between the regions proved by historical background. She considers that the relations have extremely high potential and are underestimated, though admits that trade volume is still small and far from its potential. She also mentions the high pace of relations growth.

She analyzed not only South Korea, but other countries of Pacific Rim and describes the steps of relations intensification. She provides the economic data on major South Korea's economic partners. In addition to that, she makes a comparative study including research of China's and Japan's strategies and relation with Latin American countries. The author makes an emphasis on South Korea's superiority over other countries' strategies.

The author emphasizes the fact that the issue is not studied yet. She supposes that there are numerous researches on relations of Latin America with Japan and China, but there is no research on relations with South Korea. The topic has high potential and should be research.

Davydov M.V. studies Latin America's role on food supply global market in his publication called “Latin America's Role on Global Food Market”. He analyzes the ways Lain America uses to promote its food production on global market. He considers that the food industry has high potential if collaborate with Latin American countries.

The author supposes that during the last decades Latin American countries succeeded in food sector development. Its agricultural industry became an essential part of world agricultural sector. He considers that many Latin American countries acts far from its potential but are able to catch up quickly.

Stroganov A.I. presents the major patterns in political and economic development of Latin American countries. He covers a long period of time and backs up the research with case studies. He provides a detailed analysis of economic and political modernization of the region. The major focus is made on Argentina, Brazil, Cuba, Mexico and Chile as the major actors of modern Latin American relations. Furthermore, he assesses the importance of integration processes in Latin America. Finally, he reveals social risks which makes countries less attractive for foreign investment.

Pashentsev E.N. research political changes in modern Latin American history connected with leftist movements in his publication called “Leftist shift and mass media wars in Latin America”. He analyzes economic strategies aimed at structural economic issues solution. It helps to analyze economic changes happening in the regions and assess the risks caused by political instability. Analysis of internal affairs also enables to understand the strategy of economic ties establishment with other foreign actors. Furthermore, the publication reveals the role of mass media in political processes which helps to reveal national interests.

Primary sources used as a research basis can be divided into the following groups:

1. Statistics published on Ministries websites and other governmental or international institutions (WTO, World Bank, Ministry of Foreign Affairs, Ministry of Economy and Finance, Ministry of Trade, Industry and Energy, Korea Investment Cooperation, etc);

2. Statistics provided by analytical sources (Transparence International, Trend Economy, Doing Business Ranking, Our World in Data, Foreign Trade Information System, Business Korea Portal, Gateway to Korea Portal, etc);

3. Mass Media factual reports (the Korea Herald, Yonhap News, KBS, Naver, JoongAng Daily, Koreatimes, etc).

To conclude, the results are expected to be connected with assessment of opportunities and obstacles of entering Latin America for South Korea based on historical background of both regions. Data on current affairs status will also be collected. Rivalry in the region is to be analyzed with the advisory on entering strategy and direction of expansion. The results are expected to be beneficial while analyzing South Korea's economic policy. It might help to improve attractiveness of Russia for East Asian partners and to wisely shape Russia's policy on global scale. The research data and results may also be used for further research on related issues.



Chapter 1

1.1 Peculiarities of economic development of Latin America in 1980s-1990s

There was gap in socioeconomic conditions between Latin America and developed European countries. Governments of Latin American countries established a target to decreases the gap in order to eliminate foreign intentions to expand its interests and to decrease the possibility of internal turmoils. New way of modernization had to be implemented.

Recently modernization was associated with enhancing the role of state in economy, enhancing social policy and protectionism tendencies. Most governments followed import substitution implemented after World War II. It was aimed at fast industrial development encouragement. Governmental institutions were the main driver of economic progress. But the structure of world manufacturing became more complex and diversified, world economy became more dynamic. Governmental institutions could not be in step with evolving condition and thus hinder economic growth. Market-based reforms were needed.

One of the main features of the period was internationalization of manufacturing and establishment of interaction with transnational corporations. Isolation from world economy may lead to falling behind the technological progress. Consequently, economic progress depended on international ties and integration into world economy. Highly technological developed partners were needed. The common path of various Latin American countries was investment attraction, loans, import of foreign technologies, export orientation.

The first country changed its policy this way was Brazil. It was quite successful, Chile, Bolivia, Uruguay and Argentina followed same model. The countries mentioned emphasized their ability to provide more competitive resources for foreign partners such as lower wages, for instance. It has negatively influenced economic and legal conditions for population. In Mexico, Costa-Rica, Columbia and Venezuela economic reforms less influenced socioeconomic conditions. It was mostly made within existing reform policy. Nevertheless, it became more vulnerable to foreign capital flows and world market conditions.

Foreign capital attraction policy resulted in increase in overall foreign direct private investment flow from $18 billion in 1967 to $80 billion in 1983. In the end of 1970s about 30% of manufacturing was under control of enterprises with foreign participation. Surprisingly that share of the USA investment decreased from two thirds to a half. On the contrary, share of Europe has increased. Even such small countries as Belgium, Netherlands, Switzerland and Sweden has started to invest significantly. Japan's share has increased and was mostly concentrated in Brazil. Approximately a half of Japanese foreign investment was concentrated there.

Most significant share of investment was directed into machinery, chemical, electronics. Though state has prohibited foreign actors to participate in mining industry, foreign actors took under control sales and distribution of mineral industry's production.

The period of 1980s in Latin America can be characterized as acute social and economic instability. It was a consequence of dictatorship elimination and modernization policy. As the result, states had to limit import of equipment needed for industrial manufacturing in order to store capital. Furthermore, local investors started to prefer external destinations instead of internal ones. For example, the volume of investment flows out of Latin American regions comprised approximately $400 billion in 1988. The factors led to increasing governmental loans to ensure existing loans. It made Latin America less attractive to foreign actors.

It was a challenge to solve all existing issues to improve economic conditions and make the region more attractive for foreign investors. Most states have started from industrial modernization. The emphasis was made on new technologies. It contributed to make economic growth stable in Chile, Costa Rica, Venezuela. Brazil and Mexico became world top ten countries concerning GDP total volume. Export structure is being changed under the development of technologies in industrial manufacture. Mining and end goods has started to sublimate commodities.

Despite positive improvements mention above, there were also negative impact of such changes. Deciding on solution to external debt payments became the key task for the states. In order to save Latin America from deep crisis, international institutions offered new loans in case Latin American countries change its policy. It was expected that the wages should be frozen, social policy expenditure should be decreased. Therefore, attempt to improve economic conditions led to worse social conditions which resulted in civil riots, worse living standards, rise of drug traffic and violence because of high rate of unemployment.

Severe economic and social conditions gave a rise to drug manufacturing and traffic business. It had huge financial benefit and could afford to use technologies and best means of transport and communication. It was implemented in various fields of life in many countries of the region. The volume of drug business was larger than economies of some countries of Latin America. Bolivia, Peru and Columbia are considered to have most impact of the business. For instance, the head of Bolivian drug business succeeded to became the president of Bolivia in context of military coup in 1980 and established dictatorship.

Besides positive impact of liberalization of national economies there was negative ones. There was a reduction of social programs, wages decrease, massive layoffs, vulnerability to global conditions, crash of small business in context of protectionism decrease. Automation of industries led to dismissals and consequently marginalization of population. Underground economy was evolving. Moreover, national sovereignty of unsuccessful states became vulnerable on global arena. In addition to that, a significant share of benefit from transnational corporations was exported. For example, in 1975 approximately $7.7 billion was exported from Latin America, while in 1982 $36.8 bill was exported from there.

Therefore, manufacturing volume of 1990 was less than the same index in 1980 in the majority of Latin American countries. Inflation rate comprised average 1200% in 1989 in the region. 1980s were a challenging and not successful decade. External loans became the leading means of foreign capital expansion. The share of external sources of capital in Latin America has increased from 8.2% in 1970 to 26.3% in 1980. Such trend was led to growing external debt. To compare, in 1970 foreign debt comprised less than $20 billion, while in 1983 it increased to $360 billion Stroganov A.I. (2002). Latin America in the twentieth century. P. 268.

In order to enable economic and technological progress, governmental investment into scientific research has increased. GDP of Latin America has increased three time in 1980s in comparison to 1960s. Annual increase in mining reached 7% in 1970s. The share of agriculture decreased but the volume of agricultural products increased 1.5 times. Agricultural commodities were still dominating but the volume of final goods in agricultural export has increased three times till 18%.

Furthermore, in order to integrate into world economy quicker Latin American countries established numerous local associations and organizations of various types. Latin American Integration Association was newly reorganized from Latin American Free Trade Association with the emphasis on industrial manufacturing division and cooperation. Latin American Economic System organization was established in 1975 in Panama to promote economic cooperation throughout the region. It was the first Latin American economic organization which does not include the USA and enables security of national economic interests.

Ecological movement has also rose in Latin America in the end of 1970s. The focus was made on Amazon river. The key requirement of the followers was the reduction of negative impact of industry and its waste. Amazon Cooperation Treaty Organization was initiated by Brazil and then signed by Surinam, Bolivia, Colombia, Ecuador, Venezuela, Peru and Guyana. The treaty acts for wise allocation of natural resources.

Rio Group was established in 1986 as a successor of Contadora Group. It was formed to discuss key economic and political problems of Latin America such as external debt payments.

To conclude, as relations between countries of Latin America has become more integrated and well-developed, the role of the USA in Latin America has decreased. Consequently, Latin America became more open to establishing ties with other regions and could provide more new opportunities for it. Nevertheless, the interest of the USA in the region and needs for development of Latin America make the relations between the regions anyway interconnected.

In addition to that, it should be mentioned that Central American countries succeeded significantly during the last four decades. Social and political structure of Central America was less mature in comparison to South America. Consequently, authoritarian features were implemented into political institutions there. The only exception was Costa Rica. In addition to that, the USA could easily expand its influence in the region. Therefore, revolutionary movement for liberalization was strong.

For example, one of the most significant action of the movement was revolution in Nicaragua aimed at diminishing Somosa family dictatorship to improve economic misbalance among large Somosa-influenced corporations and small business and therefore improve living standards. Low percentage of politically conscious population and low level of literacy made creation of opposition more complex. Nevertheless, revolution occurred. Inflation rate went down from 80% in 1980 to 24% in 1981, GDP volume increased significantly. The global ties are being developed worldwide. In 1979 Nicaragua joined the Non-Aligned Movement.

At the end of 1970s decolonization occurred in the Caribbean. Firstly, six ex-Britain colonies became independent. The process of decolonization ended in 1983 and comprised 13 new independent states.

Finally, Latin American countries being states with economy based on agriculture turned into states with mature industry and manufacturing. Brazil and Mexico reached some of the global top positions by manufacturing volume. Neoliberal policy became the driver of modernization. The region became ready for developing equal economic partnership with new foreign partners despite the fact that some issues are still to be solved. Now the key task for Latin America is to find the appropriate way of modernization and economic development which would suits the needs of Latin American society in context of existing issues and ensure integration of the region into global economy.

Nevertheless, the interest of the USA in the region and needs for development of Latin America make the relations between the regions anyway interconnected. Influence of the USA should be always taken into account.

1.2 Challenges of South Korea's economic development

At the end of 1950s South Korean economy was facing numerous challenges. It was one of the poorest countries in terms of economic development. There was a strong need for reforms to revive economy and improve living standards. Finally, thanks to implementation of five year economic plans, South Korea succeeded to get a status of industrial economy in 1986Korgun I.A., Popova L.V. (2011). External economic factor in the Republic of Korea's development (1950-2011). P. 33 and increased GDP per capita from $79 to $2500 in 1960 and 1986 respectively.

In order to enable economic growth, after two months of ruling Park Chung Hee has implemented five year plans. It might seem beneficial because of Japanese positive experience in economic reorganization included planning. It enabled to implement comprehensive governmental regulation in all fields of economy including financial system, taxation, currency control.

Park Chung Hee intended to implement export orientation economic policy. He considered that in case a state does not have resources than the only way is to enable economic growth is exporting. Japan succeeded using similar economic model. Consequently, export volume in 1979 comprised $15 billion while in 1960 it comprised just $33 million.

South Korean market was too small to consume the volume of goods produced. It was also satisfied with light industry products, but there was a need for extra capital to ensure further economic growth. Unfortunately, US financial aid has started to decrease since 1958, though it was the only source of currency. It has also become the reason for export orientation policy promotion.

Furthermore, export orientation helps to improve trade balance. If there is a shortage of commodities, there is a need to import a lot. Huge export volume helps to balance import and export, which eliminates trade deficit.

Since that time South Korea has started to economically expand globally. Export orientation policy became a source of economic growth and industrial development. Actually, there were several stages of expansion abroad.

In order to increase revenue from export, currency reform was implemented in 1964. It unified currency exchange rates and devaluated South Korea's currency. It increased the revenue from export transactions.

The other step aimed at economic revival were five year economic plans introduction. Each five year economic plan has its peculiarities. During the first five year plan the main focus was put on development of agriculture and light industries which could enable to improve living standards and give a rise for development of other industries. During that time South Korea has established diplomatic relations with one of its major economic partner Japan in 1965. Development of economic ties had positive impact on South Korean economy.

Overall, the first five year plan is usually assessed as successful. Nevertheless, it revealed that South Korea is depended on foreign capital. Extra capital is needed to enable industrial development.

The second five year plan had even more positive impact on South Korean economic development. To enhance economic growth there was a need for better quality of labor force, self-supply of major products, emphasis on technology and science, increase in population wealth and their savings. Therefore, the government has focused on development of chemical and heavy industries. It could bring positive impact on economy's independence, self-supply, technological development, development of labor skills and expertise, increase in capital by enhancing export.

Such reforms significantly increased the share of heavy industry. Therefore, at the end of 1960s heavy industry comprised two thirds of all industrial manufacturing. At the same time, agricultural goals were less ambitious. The third five year plan was aimed at improving balance between sectors, but the emphasis was still made on chemical and heavy industry.

The first three five year plans are considered to be successful. The reason for that was the usage of imported commodities and strong reliance on foreign partners. Economic progress was built on foreign capital. Actually, South Korea lacks mineral resources, areas appropriate for agricultural needs, internal capital.

Shortage of mineral resources reflects issues in economy. For example, one of the main challenges South Korean economy faced was oil crises in 1970s. The most severe effect on economy was brought by crises of 1978-79. It influenced the plans of extreme economic growth so that the fourth five year economic plan was less successful.

The first stage of South Korea's economic expansion occurred in the second half of 1960s. South Korea has joined GATT in 1967. It was a successful step in context of export orientation. It provided an opportunity to export South Korean goods to markets of developed countries on special conditions. At the same time, South Korea was not required to liberalize its market for import of other WTO members. Therefore, South Korea got an opportunity to develop export and to secure its local production which was not mature enough to hold a competition with imported goods.

GATT joining allowed South Korean government to develop new industries which seemed to be beneficial in future. For instance, in the beginning of 1970s the focus was made on heavy and chemical industry which had to be created from scratch. The strategy was to develop these industries in context of import substitution. Thanks to GATT regulation, South Korea was allowed to secure it.

Though South Korea was strongly oriented on export and attempted to limit import, during Oil crises it faced inconvenience in natural resources receiving and had to reconsider its policy towards import. Despite concerns it had positive impact on South Korean industries, especially metallurgy engineering and shipbuilding. Such conditions encouraged some industries to develop to be mature enough to compete on global market. It contributed to high competitiveness of many industries. For example, South Korea's shipbuilding possessed leading role on global market in 2001 Suslina S.S. (2008). Foreign economic policy of the Republic of Korea..

Status of a GATT member allowed South Korea to integrate into global industrial process and to follow world trends in industries. It was the reason for successful shipbuilding and automobile industry development. It also allowed to participate in labor force division between global society. It means that South Korea has got the chance to export some stages of industrial manufacturing to other countries possessing cheaper labor force or easier access to resources allocation. It is a beneficial point for value added manufacturing.

In 1960s the main way out was policy aimed at foreign capital attraction. The first attempt was Foreign Investment Promotion act announced in 1960. It had little effect because of unattractive economic condition in South Korea and instable political situation. It was republished in 1997 and improved conditions for investors liberalizing most of economic fields.

The second stage of economic foreign expansion can be connected to the middle of 1980s, when some economic liberalization reforms were introduced and the pressure from the USA and Europe appeared because of South Korea's status of developing country in GATT framework.

The period of strong governmental regulation ended with the murder of Park Chung Hee in 1979. The new leader Chun Doo Hwan provided more liberal policy. He supervised the fifth five year economic plan aimed at improving living standards and technological development.

Chun Doo Hwan was very active in foreign affairs. The promoted South Korea to organize Asian Games in 1986 and Olympics in 1988 that helped to intensify ties with other countries and to improve the image of South Korea on the global scale. In addition to that, he committed state visits to the USA, European and African countries, established relations with Eastern Europe.

Economic liberalization and democratization started. South Korea also obtained world recognition.

Therefore, 1980s was the first stage of South Korea's economic expansion into Latin America in line with the second wave of South Korea's general economic expansion abroad. Such step may help to handle the issues South Korean economy faced in 1980s including need for new markets to sale export production, attract cheap labor force, supply of natural resources. As 70% of all industrial manufacturing was concentrated in chemical and heavy industry, commodities were strong needed to ensure industrial production Korgun I.A., Popova L.V. (2011). External economic factor in the Republic of Korea's development (1950-2011). P. 34.

Democracy and economic liberalization actively continued being developed after new president Roh Tae Woo was elected in 1988. He continued to follow Chun Doo Hwan foreign policy and made attempts to enhance the role of South Korea on global arena. It was the period of the end of Cold War which gave the change to establish relations with countries of the opposite alliance. For example, South Korea has established diplomatic relations with People's Republic of China in 1992.

In 1991 South Korean policy resulted in its highest level of global recognition. It has become the UN member in September 1991. Earlier only DPRK could pretend to be the UN member. South Korea's join the UN became possible because of establishment relations with major powers of the former alliance such as Russia and China.

The further input to economic liberalization was made by elected in 1993 Kim Yong Sam. He focused on elimination of corruption and increase of transparency in economic processes. For example, a former president Roh Tae Woo was sent into prison for the reason of corruption. This policy was aimed at increase of South Korea's investment attractiveness and elimination of chronic economic issues, which were limiting economic effectiveness. In addition to that, he prevented military forces from participation in policy and economy of the country.

Furthermore, Kim Yong Sam made a focus of economic activity of state officials. He strengthened supervisory of governmental revenue from taxation. He also changed the way bank accounts were regulated. Before 1993 passports were not required to open bank account. Many officials used that opportunity to open bank accounts providing fake passports to hide banking transactions. Kim Yong Sam implemented new requirements in banking field to eliminate the issue and introduce more transparency. Therefore, economy of South Korea became more transparent and got more freedom from governmental penetration.

Despite positive trends, in the middle of 1990s South Korean also economy faced macroeconomic issues. South Korean export were losing competitiveness though it was the major field of governmental income. Attempts to limit wages and freeze prices were implemented.

Besides economic reforms aimed at integration into global society, Kim Yong Sam has focused on increase of South Korea's attractiveness as a touristic destination. It could help to become a more globalized partner and to attract foreigners' spending flow into South Korean economy.

New political ties became beneficial in context of new economic challenges. First of all, South Korean labor force became more skillful and qualified. In addition to that, well developed and highly ambitious trade unions acted for better working conditions such as salary increase. It led to increase in wages and, therefore, increase in price of production. It made South Korean manufactured goods less competitive on market. Though it became better in quality Japan was still more preferable for almost the same price. China's production was poorer in quality but could provide best prices for that. South Korean entrepreneurs started to allocate cheaper labor force abroad. Emergence of China's production had a huge impact on South Korea's position on Asian market in the beginning on 1990s.

At the same time, in context of foreign investment attraction and new laws liberalizing import for that reason, South Korea faced trade deficit again in the beginning of 1990s. Consequently, foreign debt volume has started to growth. It meant that export had to be increased in order to decrease debt. Though in 1989 export prevailed over import, in 1991 import volume was $5 billion more than export.

Since joining GATT till the middle of 1980s South Korea was not an active GATT member Korgun I.A., Sutyrin S.F. (2015). South Korea's trade policy: choice of optimum pace of liberalization. P.13. It was enjoying special opportunities for export and security of domestic market. Consequently, there was no need for initiatives introduction.

Nevertheless, since 1980s South Korea faced pressure from the USA and developed European countries that acted for elimination of limits for its export to South Korean market. South Korean economy became more mature and did not possess the role of poor economy anymore. It still possessed status of a developing country, which provide special benefits for South Korea in world economic relations. For example, the USA which provided special conditions for South Korean export, accumulated strong negative trade balance with South Korea. Because of that it was willing to improve trade balance. It attempted to reduce the volume of South Korean manufactured goods to its local market.

Therefore, South Korea perceived Uruguay Round Trade Negotiations as an opportunity to relief pressure on South Korea and to reconsider South Korea's role in world trade. It performed actively while attempting to secure its less competitiveness agricultural production and to define the role of its industry in world trade. It did its best to store the status of a developing country to possess special conditions in world trade despite high pace of economic development.

The outcome of Uruguay Round was a South Korea's diversified trade policy Ibid.. It has broadened its foreign trade relations with developing and developed countries of various areas. It has also increased the importance of its role in world economy.

Therefore, in 1995 when the WTO was established South Korea had strong position in world economy. Its role has changed from a developing country with poor economic indexes into a Newly industrialized country of the first wave. Since the middle of 1980s till 1995 South Korea's GPD per capita has increased more than twice and reach the level of about $12 000.

Consequently, South Korea had to share the same conditions as other developed countries with no preferences. South Korea's market of all industries had to become more liberalized. Furthermore, South Korea has joined OECD in the end of 1996. In order to fulfil OECD requirements, it also had to introduce more liberal economic reforms.

Before 1997 it has requested to obtain allowance for investment while after the new law investor should just notify about their intention to start investment South Korea's Civil and Criminal Law. Retrieved on 29 April 2019 from URL:http://www.bibliotekar.ru/3-1-31-2-pravovye-sistemy/16.htm. Since 1998 mergers and acquisitions of South Korean companies became allowed for foreigners. If the field of investment is connected with technologies, there is reduction of taxes on revenue for foreign investors for the period of seven years. Special incentives are provided for rent of governmental real estate.

Nevertheless, liberalization of South Korean economy is still controversial.

Despite the fact that it has a low level of customs duty on industrial goods comprising 6.8%, it still has extremely high protection for agriculture with as high customs duty as 52.7% on average Korgun I.A., Sutyrin S.F. (2015). South Korea's trade policy: choice of optimum pace of liberalization. P.15. It means that the difference between customs duties on industrial products and agricultural goods are more than 4. Because of high custom duties on agricultural products the average level of customs duties is much higher in comparison with the USA, European Union and Japan.

As for service industry, it is nonhomogeneous. Some fields such as shipping, finance, construction are mature; some are not mature enough to be competitive on global scale. Therefore, South Korean government used this misbalance as a trigger for growth and liberalized service sector since 1990s.

Asian crisis happened in 1997 and changes numerous economic initiatives. South Korea experienced the most impressive negative growth rate of 6.7% in modern history in 1998 Korean Crisis and Recovery. Retrieved on 30 April 2019 from URL:https://www.imf.org/external/pubs/nft/seminar/2002/korean/. South Korea had to sign an agreement with IMF to get financing to rescue South Korean economy. IMF provided $58 billion for three years in case South Korea agree on macroeconomic reforms and changes in corporate structural policies. Structural economic changes led to comparatively fast recovery of South Korean economy. From a 6.7% decline in 1998 South Korea experienced 10.9% increase the next year Ibid.. In August 2001 South Korea fully repaid all financing given by IMF in 1997.

Nevertheless, establishing trade ties on the level as it was before the crisis was a difficult task. The crisis seriously influenced Asian countries which were the main economic partners of South Korea. Consequently, export oriented South Korean economy could not market its production there. The need for new partners not challenged by Asian crisis so far were needed. Expanding the list or trading partners and intensifying export ties with distant regions helped to revive South Korean economy. It saved export as the main source of economic growth for the country.

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